MW: Treasurys slip after housing data, before auction
U.S. to sell $35 billion in 5-year notes
By Deborah Levine, MarketWatch
NEW YORK (MarketWatch) — Treasury prices declined on Tuesday, giving back some of the prior session’s gains and pushing yields up from their lowest levels in almost three months, after a report showed U.S. housing starts jumped in November, way more than analysts expected.
For bond traders, the main event of the day is the government’s sale of 5-year notes.
Yields on 10-year notes 10_YEAR +4.74% , which move inversely to prices, rose 7 basis points to 1.88%. A basis point is one one-hundredth of a percentage point. On Monday, the benchmark security’s yield closed at its lowest level since early October.
Thirty-year-bond yields 30_YEAR +3.73% increased 8 basis points to 2.87%.
Yields on 2-year notes 2_YEAR -1.84% added 2 basis points to 0.26%.
Bonds stayed down after the Commerce Department said new construction of U.S. houses rose 9.3% in November to the highest annual rate since April 2010, led by multi-family activity. Housing starts
U.S. stocks extended gains after the report, with the Dow Jones Industrial Average DJIA +2.33% climbing 255 points, or 2.2%, in morning action. Read about U.S. stocks.
Treasurys were under pressure earlier, as investors felt more comfortable shifting back into stocks and commodities as the outlook in Europe brightened. Germany’s Ifo business-climate index for December climbed and Spain successfully auctioned more debt than intended at lower borrowing costs. European stocks, Spain’s debt auction
“We are still a long way from a fix to Europe’s problems, but any ease in funding pressures among member economies is certainly a welcome development,” said Kevin Giddis, president of Morgan Keegan’s fixed income capital markets.
Longer-term, yields are likely to head lower as Europe struggles to keep its sovereign-debt problems from causing banks to dump their debt holdings.
“We’re in the midst of another wave of deleveraging, precipitated by the problems in the euro zone and Europe’s banking problems,” said James Camp, managing director of fixed income at Eagle Asset Management, which oversees $19.5 billion in assets. “We’re keeping a pretty good allocation to Treasurys.”
He expects 10-year yields to fall to 1.50% sometime next year.
Analysts also noted that as trading volumes decline into the holidays, the Federal Reserve’s sales and purchases could be a larger influence on the market intra-day.
